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[Guidance Overview]

I Can't Find My Spouse: QJSA Waivers for Disappearing Spouses"Section 205(c) or ERISA and Code Section 417(a)(2)(B) provide that a plan can make a distribution without a QJSA if it is established to the satisfaction of a plan representative that the consent required may not be obtained because there is no spouse or because the spouse cannot be located. But what constitutes proof? There are locator services through the IRS Letter Forwarding program and Social Security that a plan administrator should use as proof they tried. An certifications from participants certainly help. But the Code and ERISA are delightfully silent on other options. Well, consider what the federal government does."
(Fox Rothschild LLP)

[Guidance Overview]

In A Tizzy Over Tussey? Tips for Plan Fiduciaries"Make sure that the fees do not get out of whack relative to the services being provided if service providers are being paid based on the amount of the plan's assets. Inquire as to whether the funds the plan is using are retail funds or institutional funds, which may have a lower expense ratio, and if there is a minimum plan size to qualify for institutional funds, whether that minimum can be waived or reduced. Make sure that they are acting solely in the interest of the participants and beneficiaries—for example, do not allow the plan to pay higher fees so that the sponsoring employer gets other services at a reduced price."
(Chang Ruthenberg & Long)

Understanding Public Pension Costs and Retirement Funds for Public Sector Workers"Whether reducing pension benefits is a wise policy choice depends crucially on understanding the full costs to taxpayers. Unfortunately, the complexity of estimating pension costs has led to significant confusion among both policymakers and taxpayers. This paper is a short primer on the public-pension issue, starting with the basics and moving to the most politically salient aspects. Wisconsin is used throughout for illustration, but the broader points apply to pensions in general"
(The Heritage Foundation)

The Case for Starting Social Security Payments at Age 62"Is it a mistake to allow people to claim Social Security at 62—even at a reduced rate—when we are living longer than we did when the program first started? The Center for Retirement Research at Boston College examined this question and came to the surprising conclusion that the actuarial assumptions made in 1960, reducing the amount of people who claimed at 62, are still a fairly accurate reflection of the cost—even though we're living 20 years longer."
(Bankrate.com)

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Adding Strands to California's Safety Net: State-Run Pension for Private Employees"The goal of [the] bill, SB 1234, is to give lower-income workers in small companies a way to save for their retirement that's as convenient as the plans offered by most large companies. To that end, it would create a pension fund for workers at companies that do not offer retirement plans, and require those companies to contribute 3% of each worker's pay into the new plan unless the worker opted out. In other words, workers who did nothing would automatically sacrifice a small amount of pay in exchange for a modest pension when they retire."
(Los Angeles Times)

Younger Workers More Likely to Prefer Guaran.teed Income in Retirement"According to the study, approximately three out of five Americans (64%) say their employer's 401(k) or other retirement plan does not allow them to turn their savings into guaran.teed income in retirement or they are unsure if it does. Overwhelmingly, those respondents say they would welcome the opportunity."
(Wolters Kluwer Law & Business / CCH)

Significance of the Social Security Trust Funds (PDF)By the Social Security Committee of the American Academy of Actuaries. Excerpt: "Social Security revenue exceeded cost between 1984 and 2009, leading to a buildup of $2.7 tril.lion in trust fund assets. Under current law, these assets are projected to be redeemed over the next two decades. The anticipated redemption of those assets has led to an ongoing debate over whether the assets are 'real.' The perceived significance of the trust fund assets largely depends on the context in which they are viewed: the Social Security system, the unified federal budget, or the whole economy."
(American Academy of Actuaries)

Clearing Up Misconceptions About the New 401(k) Fee Disclosure Rules"Mint.com says paying just 1% extra in fees is enough to reduce your retirement plan balance by 17% after 20 years. This is the largest problem faced by participants, but other problems exist as well. The next largest issue may be the lack of suitable investment options in the plan. According to [author Joshua Itzoe], too many plan administrators take the advice of advisors who have a financial interest in recommending high fee, low performing investment options."
(San Francisco Chronicle)

401(k) Fees Reduce Savings by 30 Percent, Says Study"The mutual fund industry disputes the Demos analysis. According to an industry trade group, the average person pays just $248 a year in 401(k) fees, which would cost the average dual-income household around $20,000 over four decades of working."
(AARP)

Younger Investors Jaded About the Stock Market, Survey Finds"About a third of Americans aged 18 to 34 said they planned to pull money out of the stock market and were most likely to 'sit on the sidelines' in the next six months and move assets into money market and savings accounts[.]"
(The New York Times; free registration required)

Let the Rasslin' Begin in Dewey's Bankrup.tcy: In This Corner, the PBGC"Typically, secured creditors get first dibs under federal bankrup.tcy statutes. In the Dewey proceeding, those include Dewey's lenders and bondholders.... Next in line come employees who were terminated in the period prior to the bankrup.tcy.... Then the other unsecured creditors get their shot. Among these the U.S. Pension Benefit Guaranty Corporation has asserted the largest claim. The PBGC sued Dewey earlier this month to seize three pension funds it said were underfunded by $80 mil.lion."
(The New York Times; free registration required)

France Rebuffs EU Warning on Pension Reform"President Francois Hollande, who took office this month, plans to partially roll back that reform, which raised the retirement age by two years. His main aim is to reestablish the right to retire at 60 on a full pension for people who started work as young as 18."
(The New York Times; free registration required)

Wal-Mart Faces Angry Investors Including Pension Plans"The real entertainment starts when shareholders vote whether to re-elect the company's board. In recent days, one pension fund after another has vowed to vote against some or all directors in the wake of allegations that executives bribed Mexican officials to open stores faster."
(Treasury & Risk)

ABC News on 401(k) Fee Disclosure"ABC News ran a segment on the ABC Evening News about the fee disclosure regulations for 401(k) plans which take effect July 1, 2012. The segment was titled '401(k) Hidden Fees' and contains an example of the impact 0.5% fees have on a typical couple's 401(k) account balance compared to the impact of 1.5% in fees. Phyllis Borzi of the Dept. of Labor appears in the video."
(The Pension Protection Act Blog)

Retirement Plan Issues: What's on the Federal Agenda?"In the question and answer article, [attorney Fred Reish] discussed retirement plan issues on the agenda in Washington, D.C., and how they might be affected by the upcoming election. Fred also discussed how the need to balance the U.S. federal budget may lead to lower limits on the amount that high-income earners can contribute to defined contribution plans in the future, and how Washington supports income projections on statements. He also noted that government officials may back retirement income solutions and education to improve DC plans."
(Drinker Biddle & Reath LLP)

How Do 401(k) Annuity Options Increase Plan Sponsor Fiduciary Liability?"If you recall, one of the priorities of the 2006 PPA was to discourage 401k investors from placing too much of their assets into stable income or guaran.teed income funds. The lack of growth in those funds had eaten away at the long-term value of retirement assets. Now, we have come full circle. There is one age demographic where this issue stands as most threatening: the young 401k investor."
(Fiduciary News)

San Jose Shows the Way Out of Public Pension Sinkhole"On June 5, San Jose voters will almost certainly pass a measure that would give current city workers this choice: stay in the current pension system and increase contributions to help pay off the city's unfunded pension liabilities, or choose a lower-benefit option. Thanks to San Jose's charter provisions, officials say they can do what courts haven't allowed in other locales: pare benefits for current public employees."
(Bloomberg)

Combination of ERISA-Exempt 403(b) Plan with Qualified Plan"In Advisory Opinion 2012-02A, the DOL addressed a 403(b) plan that appears to meet the DOL safe harbor regulation. The plan does not provide for employer contributions. However, the employer wanted to provide a matching contribution. So, the employer established a qualified money purchase pension plan with the amount of the contribution equal to a match computed on the 403(b) deferrals. This arrangement provides the familiarity and ease of a qualified plan for the employer contributions, while avoiding the ADP test for the deferrals.... The opinion clarifies that an employer can have an ERISA-exempt 403(b) plan even though the employer also maintains a qualified plan, even if the employer coordinates the two plans to satisfy Internal Revenue Code requirements. However, a qualified plan match based on 403(b) deferrals will cause the 403(b) plan to lose the safe harbor ERISA exemption."
(SunGard Relius)

Ford Readies First Set of Landmark Pension Buyouts"Since 2000, Ford's U.S. pension liability has increased almost 50 percent. Several companies have asked Ford how the buyout offers will be rolled out, a sign that others may follow suit if Ford is successful.... The voluntary buyouts will not change the pension shortfall, but lowering the overall size of the obligation will help Ford align plan assets with liabilities."
(The New York Times; free registration required)

LGBT Adults Better Prepared for Retirement, Survey Finds"In a new survey, about 61% of those who identified themselves as les.bian, g.ay, bisexual or transgender investors said they expect to have saved enough by the time they retire to live the rest of their lives in their desired lifestyle. A comparable survey of the general population found 53% expect to have saved enough for retirement, according to Wells Fargo & Co., which sponsored the survey. In addition, a lower percentage of LGBT preretirees expect retirement to include some work. About 36% of LGBT adults said they assume they'll have to work during retirement in order to afford their lifestyle, compared with 41% of the general population."
(Investment News)

Can Workers Offset Social Security Cuts by Working Longer?"Many policymakers and pundits ... subscribe to the belief that the retirement age should be raised and that older workers can offset this and other benefit cuts by working longer. Advocates of raising the retirement age argue that only a small group of older workers would be harmed and that hardship exemptions can be put in place to protect vulnerable workers. This briefing paper explains why a further increase in the retirement age is another benefit cut that would impose significant additional hardship on many older workers, and analyzes why it is unlikely that effective policies could be implemented to shield these workers."
(Economic Policy Institute)

Ensuring the Integrity of Policy Research and Analysis Department's Actuarial Calculations (PDF)"To ensure the quality of actuarial work products issued by [the Policy Research and Analysis Department, or 'PRAD'], PBGC should take a number of actions, including developing, documenting, and enforcing policies and procedures for quality review of PRAD actuarial work, whether in an issued report or in response to ad hoc inquiries. Other necessary actions include developing, implementing, and enforcing policies to ensure the adequate and efficient review of contractor work performed with PIMS and the retention of supporting documentation for work performed by PRAD actuaries and of all accepted actuarial contractor deliverables.... [B]ased on our review of the changes referenced in the [May 21, 2012] response from PBGC, the revised process is still inadequate to ensure the integrity of PRAD's actuarial estimates."
(PBGC Office of Inspector General)

Pension Fund Asset Allocation and Liability Discount Rates: Camouflage and Reckless Risk Taking by U.S. Public Plans?"We use an international pension fund database to compare the asset allocation and liability discount rates of public and non-public funds in the U.S., (Can.ada) and Europe. We document that U.S. public funds exploit the opaque incentives provided by their distinct regulatory environment and behave very differently from U.S. corporate funds and both public and non-public pension funds in (Can.ada) and Europe. In the past two decades, U.S. public funds uniquely increased their allocation to riskier investment strategies in order to maintain high discount rates and present lower liabilities, especially if their proportion of retired members increased more. In line with economic theory, all other groups of pension funds reduced their allocation to risky assets as they mature, and lowered discount rates as riskless interest rates declined. The arguably camouflaging and risky behavior of U.S. public pension plans seems driven by the conflict of interest between current and future stakeholders, and could result in significant costs to future workers and taxpayers."
(Social Science Research Network)

Looming Election Slams Brakes on Fiduciary Regs"Facing fierce financial industry resistance, a pending regulation that would expand the definition of 'fiduciary' for anyone providing investment advice about retirement plans is confronting another hurdle: the fall election. Lobbyists on both sides of the controversial issue indicate that the Labor Department likely will hold off on promulgating a rule until after Nov. 6."
(Investment News)

Should Governmental Plan Sponsors Follow the Fee Disclosure Regs? If so, How?"According to the NAGDCA DC Survey about two-thirds (64.7%) of plan sponsors said they have or will develop a communication regarding plan fees, 25% were not sure, and 10% did not intend to (presumably relying on an outside source for this). More than a third (38.6%) said they didn't know whether such disclosures would cause participants to migrate to lower cost options, but the majority thought the disclosures would not result in a change to the fund lineup or a change to the fee structure. More than three quarters (77.9%) believed that their plan providers would comply with the new DOL regulations regarding fee disclosure for their non-ERISA plans, while the remaining (22.1%) were unsure.... [This paper explores] the value to public DC plan sponsors of adhering to these disclosures, as well as best practices in adherence."
(NAGDCA)

A Survey of Financial Advisers' Advice on the Best Time to Begin Receiving Social Security Payments"38% of Americans have a financial advisor ... 37% of all workers participate in a defined contribution plan ... Both financial advisors and defined contribution plan providers advise and/or educate workers about Social Security and when to claim benefits ... Key questions: how well do they do and how can their effectiveness be enhanced?"
(Pension Research Council, Wharton School of the University of Pennsylvania; free registration required)

Judge: NJ Doesn't Have to Pay COLAs for Retirees"The decision last week by [a New Jersey State] Superior Court Judge ... upholds part of the state's new pension law, which denies the adjustments until the retirement systems reach targeted funding levels.... Unions claimed the state has no right to unilaterally reduce pensions, which they said are part of a worker's negotiated deferred compensation package, and promised an appeal."
(CBS News)

Arizona Judge Rules Cost-of-Living-Adjustments Cannot Be Discontinued by Legislature"A Maricopa County Superior Court judge has ruled that the state Legislature violated the state Constitution and effectively breached a contract when it passed a bill overhauling the state's pension system. At issue was whether judges and elected officials were entitled to continued annual cost-of-living increases. A bill passed last year stopped the increases, which went as high as 4 percent per year, to protect the finances of the state pension fund."
(The Arizona Republic)

Target-Date Funds Are Too Complicated"[T]here's a big question in the industry over the proper 'glide path,' whether the fund is built to land at retirement age, or to stretch out the landing for the rest of their lives. To tell you how confusing it has gotten, consider that Morningstar Inc. has almost 50 different categories of target-date and life-cycle funds. The primary distinction in those groups is the retirement year it is built around, but the underlying truth is that what was built to be a simple, straightforward decision becomes increasingly complex as competition to capture target-date assets increases."
(SmartMoney)

State and Local Pension Plans Underfunded by Half"[When public retirement] plans are adjusted for the real world, where interest rates are at historic lows, those plans are underfunded by 50 percent. Put another way, those states, cities and municipalities—and their taxpayers—would have to double their contributions to those plans just to have any chance of them avoiding default on their promises to those depending on them for their retirement."
(The New American)

[Opinion]

Facebook Plunge: Why Company Loyalty Should Stop at the 401(k)"Another day, another day of losses for Facebook's (FB) stock. The stock is now down over 25 percent from its IPO price, an event which occurred less than two weeks ago. As the sell-off continues, there is only one silver lining: At least employees haven't loaded up on the stock inside their 401 (k) plans...yet."
(CBS News)

[Opinion]

Biased Analysis Maligns 401(k) Plans"The [Demos] report's analysis is based on irresponsible and unrealistic assumptions including the assumption that the average fees for mutual funds in 401(k) plans are almost 200 basis points (2 percent). The only thing proven by this report is that if you use ridiculous and biased assumptions you can reach ridiculous and biased conclusions. ASPPA has been a champion of fee disclosure and transparency for years."
(American Society of Pension Professionals & Actuaries)

Benefits in General; Executive Compensation

[Guidance Overview]

Proposed IRS Regs Under Code Section 83: Just Clarifications, or Potentially Significant Changes?"[N]umerous lawsuits have been brought over the last ten years—all unsuccessful—alleging that the application of a lock-up agreement or a black-out period to shares of stock prevented the holder from recognizing income on the value of those shares. Interestingly, the proposed regulations also may be IRS' first attempt to clarify the taxation of stock awards and other compensation that is subject to clawback under company policies adopted in accordance with Section 954 of the Dodd-Frank Act...."
(Winston & Strawn LLP)

[Guidance Overview]

IRS Issues Proposed Regs Under Internal Revenue Code Section 83"The proposed regulations clarify that except as specifically provided in Treasury Regulation Section 1.83-3(j) and (k), transfer restrictions do not create a substantial risk of forfeiture, even if violation of transfer restrictions would result in the forfeiture of some or all of the property or the employee's liability for damages, penalties or fees."
(Practical Law Company)

U.S. Rep. Barney Frank Introduces Bill to Prohibit Insur.ance Policies Against Executive Comp Clawbacks"The Executive Compensation Clawback Full Enforcement Act of 2012 would require any officer, director, or employee of a financial firm who is required under a federal financial regulatory law to repay previously earned compensation or to pay a civil penalty to be personally liable for the amounts owed. These individuals would be prevented from using insur.ance or other forms of hedging to protect their personal assets under these laws, and their employers could not procure such protection on their behalf."
(Insur.ance News)

Stockton, California City Council to Vote on Bankrup.tcy Authorization"The farming center about 80 miles ... east of San Francisco has been holding confidential talks with creditors such as public-employee unions to escape becoming the largest city to enter court protection in U.S. history. Communities and states across the U.S. face soaring costs for pensions and retiree health benefits even as sales and property-tax revenue has fallen from the longest recession since the 1930s."
(Bloomberg Businessweek)

Employee Benefits Keep Getting Cut"Over the past five years, 40% of working adults have seen their employer-sponsored benefits reduced or eliminated entirely, according to a survey by the National Endowment for Financial Education ... This year, workers' out-of-pocket costs rose 5.8% to an average of $3,470 for a typical family of four ... By 2017, cost and competitive pressures are expected to prompt more than 50% of large Fortune 1000 organizations toward dropping health care coverage altogether[.]"
(CNNMoney.com)

High-Performing Firms Use Total Rewards Effectively; Others Don't"While companies see the value of and invest significantly in total rewards programs, many don't achieve successful results because of improper execution ... According to Aon Hewitt's analysis, high-performing companies do several things differently with respect to executing total rewards programs ... As a result of these differences, 51 percent of high-performing companies say their employees understand the value of their total rewards programs compared to one-third of other companies, according to the survey. Fifty-one percent report increases in employee engagement over the past 18 months, compared with just 30 percent of the rest of the firms surveyed."
(Society for Human Resource Management)

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